Liverpool went above City into top spot in the Premier League after an emphatic 4-0 win at Bournemouth in Saturday’s early kick-off.
City then failed to reclaim their place at the summit after suffering a 2-0 defeat by Chelsea at Stanford Bridge.
And Sidwell believe Jurgen Klopp’s side can mount a serious challenge if they can come through the traditionally-hectic Christmas period unscathed.
“The Christmas period is going to be like a boxing match,” the former Chelsea midfielder said.
“Heavyweights slugging it out. One coming on top one round and the next game the other team will be on top.”
Liverpool host Manchester United in their next Premier League fixture on December 16.
They also welcome Arsenal to Anfield at he the end of December before going to City on January 3 in what could be a defining clash in the race for the title.
“I think if Liverpool can get through this festive period, really going toe to toe, ahead of that clash in January it will be great for the Premier League,” Sidwell added.
“That’s what we want to see. The way Man City dominated last year and run away with it, we want a challenge this year and Liverpool are stepping up to the plate.”
Liverpool went in front after 25 minutes at the Vitality Stadium thanks to Mohamed Salah’s controversial goal.
The Egyptian looked to be in an offside position when he converted the rebound from Roberto Firmino’s long-range effort.
Salah doubled the advantage three minutes after half-time with an excellent strike and completed his hat-trick by rounding Asmir Begovic twice after Steve Cook had put through his own net.
And manager Klopp believes it was an important victory as they chase their first top-flight title in 28 years.
“It is clear that everyone knows about the quality of Bournemouth,” the German said.
“We had to keep the ball and win the ball back as quickly as possible. We did both very often but not always as they had their moments too, of course.
On Salah’s opener, he added: “I don’t know if it was offside, I’ve not watched it back but we improved in the second half and controlled the game.
“It was really nice. Mo Salah scores that goal (the second one) and I don’t think many do in that situation.
“The third goal was again brilliant. It is really cool and it helps of course!
“We played nice football and the players we brought on did really well.”